M-Pesa drives Safaricom as profit declines to Sh12.8bn
Safaricom’s CEO Bob Collymore (left) with company chairman Nicholas Ng’ang’a during the media briefing at the Safaricom Centre in Nairobi on Thursday, where the company released its results for the year ended March 31, 2012. Photo/Diana Ngila
Mobile money transfer service M-Pesa helped Safaricom to shrug off a surge in financing costs and cut-throat competition to post Sh12.6 billion in profit after tax for the year ended March 31.
As a result, the company retained its position as East Africa’s most profitable company.
M-Pesa, the money transfer service, started five years ago as a value addition and subscriber retention tool but in the last financial year it brought in Sh16.9 billion — or 15.8 per cent of the firm’s revenue of Sh107 billion — making it the second most important income stream for the company after voice which contributed Sh69 billion or 64.4 per cent to the top line.
“Total revenues increased by 12.8 per cent from Sh94.83 billion to Sh107 billion driven by significant growth in M-Pesa and data revenue and better-than-expected growth in voice revenues,” said Safaricom chief executive officer Bob Collymore when he released the results on Thursday.
The growth in voice revenues by nine per cent to Sh68.9 billion was, however, driven by an upward revision in voice tariffs and an 11 per cent increase in customers to 19 million, making it unreliable as a source of long-term growth.
In the previous year, M-Pesa earned the company Sh11.8 billion which was about 12.5 per cent of the total revenue while voice earned Sh63.5 billion, or 67 per cent of the overall earnings.
In 2010, M-Pesa contributed nine per cent of Safaricom’s revenues, having jumped from 1.2 per cent in 2008.
In contrast, the data segment contributed 29 per cent of the revenue despite a downward review of broadband prices. Data and SMS brought in Sh6.6 billion and Sh7.8 billion respectively.
Mr Collymore said sustained growth would be hinged on the data segment which comprises M-Pesa, short message service and broadband in the face of low voice tariffs, high borrowing costs and foreign exchange fluctuations.
Over the next four years, the company plans to invest Sh13 billion in building its own fibre network to complement the leased capacity.
“We will continue investing in our network coverage and capacity improvement to cater for growth in broadband and in particular mobile broadband,” Mr Collymore said.
Despite the growth in all income streams, the net profit dropped four per cent from Sh13.2 billion the previous year because of high borrowing costs and intense inflationary pressure.
The company, however, said it would pursue a progressive dividend policy which aims at keeping the payout to shareholders at least at the previous year’s level.
For the year in question, the company will pay a dividend of 22 cents per share, a 10 per cent increase over the previous year.
Safaricom shares were on Thursday trading at Sh3.45 each following the announcement of the results, up from Sh3.30 on Wednesday.
Since November when the company released its half year results, the share price has risen from Sh3, representing a 10 per cent increase to date.
In the first half of the year, voice earnings were eroded by price wars that gripped the sector from August 2010 when the interconnection rates were slashed by 50 per cent.
The voice earnings contribution to the total revenue dropped to 68.8 per cent from the previous 72 per cent.
However, its competitors are still applying lower rates with the nearest rival at Sh3 per minute across networks compared to Safaricom’s Sh4 per minute within its network and Sh5 per minute to other networks.
Industry analysts said the growth of M-Pesa revenue was mainly driven by an increase in the volume of chargeable transactions.
“This is in line with a stronger M-Pesa Average Revenue Per User of Sh96.00 compared to Sh77.50 the previous year driven by an increase in the gross volume of chargeable M-Pesa transactions,” said Gregory Waweru, an analyst at Kestrel Capital.
He, however, said the relatively higher tariffs on voice could cause subscriber flight in the face of economic hardships.
“Safaricom is exposed to the risk of higher churn rates, and overall decline in subscriber market share but we still expect its premium pricing to persist even after the termination rates settle,” he said.
Telkom Kenya charges Sh2 within its network and Sh4 across network. Airtel and Essar’s yu charge Sh3 within and across networks.
Although Safaricom put the number of its M-Pesa customers at 14.9 million, data from the Central Bank of Kenya (CBK) showed that the service had 15.2 million registered users as of December last year, making it the largest mobile money transfer service.
Airtel had 3.16 million customers, yu 520,000 against Telkom Kenya’s 130,000, MobiKash’s 110,000 and Tangaza’s 70,000.
“M-Pesa and data is going to contribute heavily to Safaricom’s revenue going forward and that is the reason the firm has started partnering with firms such as PesaPoint to drive more people to business M-Pesa transactions,” said Danson Njue, an analyst with telecom research firm Informa.
Safaricom is banking on corporate transactions such as salary and dividend payments and utility bills payments to drive M-Pesa usage.
At the time of M-Pesa’s launch in 2007, the number of Kenyans with access to financial services stood at 58.7 per cent, according to a survey by Financial Sector Deepening.
Thanks to mobile money services, Mr Collymore said on Thursday that access to financial services had risen to 80 per cent.
Mobile money transfers crossed the Sh1 trillion mark in 2011 with the M-Pesa platform accounting for the bulk of the transactions, according to the Central Bank of Kenya.
Since inception, M-Pesa has moved Sh1.46 trillion or Sh56 billion per month.
Data from the Communications Commission of Kenya (CCK), the telecommunications industry regulator, shows that mobile money deposits rose by 50.6 per cent in the past three months of last year to hit Sh176 billion, equivalent to a tenth of the Sh1.5 trillion held by commercial banks.
